Pros and cons of gift shopping with plastic

Get togethers with friends and family are staples of the holiday season. But those aren't the only reunions during the holiday season. Creditors and credit card holders typically get together during the holiday season as well. And while some of those reunions are happy ones, others can turn disastrous. Shoppers who aren't careful can quickly find themselves with finance charges that equal or exceed what they spent in the first place.

While many shoppers feel as if they won't make it through the holiday season without piling up debt, it's important shoppers remember they need to make it through the months of January, February, March, April, etc., as well.

Before swiping your credit or debit card at the nearest cash register, it's best to understand the differences between these two forms of plastic:

• Credit cards are issued by banks or a business and allow you to make purchases on a line of credit. You'll be offered a pre-set spending limit (credit limit) based on your financial standing. In essence, credit cards offer you a short-term loan that must be paid back in full the next month or else a high interest rate is imposed. (Charge cards do not allow cardholders to carry a balance, and must be paid back in full immediately).

• Debit cards are issued strictly by the bank, and offer a direct link to an individual's checking account. When a purchase is made, it is deducted from that account. Using a debit card is the same as paying with a check, just without the hassle of paperwork or waiting on lines while people write out checks.

While every family or group of friends likely has one person with a horror story or two pertaining to holiday credit debt, there are pros and cons to using both credit cards and debit cars during the holidays. Some of the benefits include:

• Available funds. Credit cards provide easy money, allowing shoppers to make it to holiday gatherings or to purchase last-minute gifts. Setting aside larger purchases (i.e. plane tickets, holiday meals, hotel reservations) solely for a credit card can help you better keep track of how much you have spent and can make the stress of planning your travel schedule easier. Debit cards will provide a quick link to your checking account, and can make purchases faster than using a paper check.

• Sense of security. Credit cards offer far more security for your purchases than simply paying with cash. Also, items purchased with credit or debit cards can make returning or exchanging gifts a far smoother process. Typically, purchases made with credit cards are completely protected, meaning a lost or stolen purchase, while unfortunate, can be replaced at no cost to the consumer.

• Hidden benefits. Many times credit card companies offer incentive programs such as airline miles and other discounts with each purchase, giving consumers more for their money and mitigating future interest payments.

But just like there are two sides to every coin, there is also a dark side to relying solely on credit or debit cards when holiday shopping. Some of those disadvanatages include:

• Fees. Both credit and debit cards often carry hidden fees with them. These fees charge or deduct money from an account simply for making a purchase. Knowing these fees and limiting how much they are charged is essential to keeping bills low come January. Credit cards also impose hefty interest rates if purchases are not paid back in a timely manner. Look for cards with lower rates, or pay as much toward your credit card balance as possible come bill time.

• Going over budget. Credit cards can offer consumers a false sense of security, making most believe they have more money readily available to them than they actually do. At a time as emotional as the holidays and in a year when many people learned the hard way about financing more than they could afford, overspending can prove especially dangerous.

* Non-fixed interest rates. Credit card companies can change interest rates on a whim, and without an account holder's approval. Just because an interest rate is affordable today does not mean it will be tomorrow.

• Identity theft. Identity theft protection has made leaps and bounds since the salad days of Internet shopping, but shopping extensively with a credit or debit card, particularly online, is still risky. Hackers can steal personal information from shoppers who use plastic to make purchases online. Keep track of purchases and cross-check statements to monitor unauthorized purchases. And, if cards are stolen, notify the relevant bank and credit card companies at once.